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Analysts see a superboom and fading fastener woes

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In less than 10 years, the aerospace industry has gone from bust to boom—or, perhaps more accurately, a superboom that has catapulted plane orders into the stratosphere.

But when something soars that quickly, turbulence is sure to be felt. That's been especially true for aerospace-grade fastener manufacturers, who have been struggling to meet demand.

Analysts that follow the fastener market say a number of factors converged to created these shortages.

Manufacturers consolidated operations following the steep fall-off in orders that began in 1999 and that intensified after the Sept. 11, 2001, terrorist attacks. This left airplane makers with fewer suppliers and less products to tap when orders started rebounding in 2004.

Boeing Co., keen on getting its 787 Dreamliner off the ground, also had to deal with the logistical nightmare of having many of its subcontractors spread out all over the place, many of which were unable to produce the type of fasteners the aircraft maker needed most.

"I think that combination of lack of investment on behalf of fasteners, the big surge in orders and supply chain-type difficulties all kind of got wrapped up into one and created, to use a great movie title, the perfect storm," Dave Petina, industry analyst at Cleveland-based Freedonia Group, said. "It all kind of hit."

Pat Meade, aerospace manager at the Industrial Fasteners Institute, Independence, Ohio, said another part of the equation was that Boeing wasn't sure on the exact lengths of the fasteners it needed for the Dreamliner. The new airplane is made from composite material, with a thickness less precise than traditional aluminum structures. "That results in them waiting a little bit in ordering fasteners," he said.

The more serious problem right now, though, isn't a lack of capacity in producing the fasteners but in finding the labor to do the work, Meade said. "They would put additional people on a second and third shift if they could find them, but they can't find them," Meade said, citing conversations he had recently with some manufacturers.

If not for the labor problem, Pittsburgh-based Alcoa Inc. and other producers could have the product shortages resolved in six months to a year, Petina said. But now it's anybody's guess when supply will catch up with demand.

"The problem is still the shortage of manpower, and there's no quick way to train skilled personnel to be fully productive in manufacturing," Meade said, adding that new training programs are being initiated to train more people in the intricate skills needed to make fasteners.

Unlike the aerospace industry, there is no shortage of fasteners in the automotive industry. That has spurred discussion that some automobile-grade fasteners could be reconfigured for use on planes. But analysts said that's a difficult proposition and it'll take time to work out.

"Some automobile fastener manufacturers are indeed talking to Boeing about becoming approved to produce Boeing hardware," Meade said. "But it will mean new quality-control systems and new training and some new equipment. The earliest you could expect this is one year from now. And that is only when the automobile manufacturers can produce a product that Boeing has a shortage of."

The tremendous growth in demand for fasteners isn't expected to come to an end anytime soon. According to Petina, aerospace-grade fasteners accounted for about $1.7 billion of the overall $11.1-billion fastener market in 2006. He expects the aerospace fastener market to see compound annual growth of 6.2 percent from now until 2011.

With many aircraft orders coming from overseas carriers, most analysts don't expect the U.S. economic downturn to put a big dent in Boeing's backlog. A bigger issue, Petina said, might be consolidation among U.S. airlines—say if a merger comes to fruition between United Airlines and Continental, or Delta and Northwest.

Rising oil prices could increase ticket prices and cause some passengers to rethink flying to holiday destinations, but airlines will still likely order the new plane models because of their greater fuel efficiency, Petina added.

And while prices for raw materials used to make the fasteners have been surging amid strong global demand for metals, analysts don't see this as an obstacle in producing more fasteners.

Aerospace fasteners are mostly made up of titanium and high-strength nickel alloys, such as Inconel, an alloy trademarked by Huntington Alloys Corp., Huntington, W.Va., and Meade said those raw materials are still widely available.

"I'm hearing lead times today on raw titanium material is six to eight weeks. So that is not a problem," Meade said. "Price increases for the most part are being offset by increased prices for the fasteners."

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